‘Paradise Papers’ Puts Corporate Tax Avoidance on Center Stage

A man walks past the offices of Appleby in St. Helier, Jersey, Britain on Tuesday.
Photo:
Reuters

The latest round of leaks of offshore incorporation documents, known as the "Paradise Papers," put a spotlight on Americans and companies and their use of such vehicles to avoid paying taxes.

The leak of 13.4 million documents, provided by anonymous sources to the German newspaper Süddeutsche Zeitung and shared via the International Consortium of Investigative Journalists, revealed the offshore business activity of a number of elite clients of the Bermuda-based law firm Appleby and of corporate registries across 19 jurisdictions. Among those named are the Queen of England, U.S. Secretary of Commerce Wilbur Ross, rock star Bono and other elites. It revealed the avoidance strategies of blue-chip companies such as Apple Inc. and Nike, which sought access to offshore havens to pay lower or no taxes.

"What we learned confirms what we always suspected: That the use of offshore companies is more widespread than ever imagined. Offshore financial centers are useful not just for crooks, oligarchs and politically exposed persons but also to the largest global companies and highest net-worth individuals," said Ross Delston, a Washington D.C.-based anti-money-laundering expert.

Unlike prior leaks, such as the Panama Papers last year, the Paradise Papers featured more companies and Americans, said ICIJ when announcing the first stories. Experts told Risk and Compliance Journal the prominence of companies in the Paradise Papers is due in part to Bermuda's reputation as a safe place to do business. While doing business in a place such as Bermuda or other offshore jurisdictions generally isn't illegal, their secrecy provides an opportunity for abuse of the financial system, said the experts.

"In general public companies like to deal with high-end offshore financial centers, of which Bermuda is one," said Mr. Delston.

There's an entire industry devoted to offshore finance that helps companies and wealthy individuals escape taxes or regulation, said activists and observers. Law firms and other non-financial organizations aren't subject to customer due diligence and anti-money-laundering requirements, they said, and are left to police themselves when conducting business on behalf of clients seeking to avoid taxes.

"Americans don't go to Panama because they see Panama as a dodgy place, whereas Bermuda and the Channel Islands are viewed as where proper Wall Street gentleman hide their money," said Clark Gascoigne, deputy director of the FACT Coalition, a consortium of organizations that promote anti-corruption policies. "This is why you're finding Americans and American companies in the leak."

Mark Hays, the head of the anti-money-laundering campaign at Global Witness, said while the Panama Papers revealed the mechanisms--company and entity formation--that went into the offshore and illicit finance industries, the Paradise Papers "paints a more-detailed picture" of the role financial professionals play in creating those structures for their clients, and in navigating the system for their clients.

"The goal was to find a place with the right representation where they could gain entry to the broader offshore system, not just to park the money in Bermuda," he said.

Write to Samuel Rubenfeld at Samuel.Rubenfeld@wsj.com. Follow him on Twitter at @srubenfeld.